Audit opinion

Q1.Tourex and Pudco, Kaplan rkit 2012, pg 28

The guests ahev taken legal action against a hotel. The hotel is considering an out of court settlement with the ill guests. At the SFP date, the public authotrities have not yet completed their investigations. Lawyers say informally that negotiations are going well but refuse to confirm in writing. The amount is material.

Describe how this affects your audit report.
Answer: Since the lawyers refuse to give any other formal evidence, a qualified , “except for” opinion on ths basis of lack of sufficient appropriate evidence may be needed.
however, it may be possible to take the view that there is a significant uncertainity and that an EXPLANATORY PARAGRAPH referring to this significant uncertainity is therefore appropriate, rather than a qualification, provided the matter is adequately disclosed in the financial statements.

this is the answer given, but I do not understand what they mean by EXPLANATORY paragraph. Is this the “emphasis of matter” paragraph? does this mean that the audit report will be MODIFIED with an EMPHASIS OF MATTER para? and it will NOT be QUALIFIED?

thank you in advance.